Analysts are smiling on Q&M Dental and keeping a positive outlook on the stock following its strong 1QFY2021 ended March and its robust Covid-19 testing business.

On May 18, Q&M announced that its 51%-owned subsidiary Acumen was awarded a tender by the Health Promotion Board (HPB) for the provision of Covid-19 swab and testing services. It will be a panel service provider of the HPB in respect of the Covid-19 swab and testing services.

Following this news, shares in surged some 3.6% when the market opened to 72 cents.

See: Q&M subsidiary awarded tender for Covid-19 swab and testing services

 

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Along with its 1QFY2021 earnings surging by 618% y-o-y to $9.4 million and revenue increasing by 47% y-o-y to $43.5 million, it is no wonder analysts are recommending to “buy” this stock.

See: Q&M reports 618% surge in earnings for 1QFY21

 

Maybank Kim Eng (MKE), CGS-CIMB Research, PhillipCapital and DBS Group Research have “buy” calls on Q&M with target prices of 87 cents, 97 cents, $1.00 and 84 cents, respectively.

Apart from its stellar results, MKE analyst Eric Ong likes the stock for its growing business. Revenue from Q&M’s core dental business rose 41% y-o-y to $39.2 million, due to higher contribution from existing outlets in Singapore.

Q&M targets to open 10 new clinics in Singapore by 1HFY2021, a 12% increase from 83 outlets in FY2020, with already three new clinics already set up.

Ong also likes the group’s 51%-owned Acumen Diagnostics, which made its maiden contribution to bottomline in 1QFY2021, and is expected to grow for the rest of the year.

“Moving forward, it will continue to ramp up this business via automation to improve efficiency and productivity to cater for higher number of swab tests conducted by the government, as well as expanding its in-house laboratory testing to include serology test,” says Ong.

On the other hand, CGS-CIMB’s lead analyst Lim Siew Khee expects Q&M to continue benefitting from the rising number of swab tests conducted daily.

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“Assuming all awardees have an equal share of the tests (about 17%), we estimate that Q&M should be able to conduct about 900 tests per day just from phase 1 sites alone. Our current assumptions are 1,500 tests per day, and we see upside to our EPS. Conservatively, due to lower ASPs and margins due to the competitive public tender, we expect potential earnings contribution from phase 1 sites of around $1 million. We think phase 2 execution could be more feasible in the later part of 2021 as there have been no alarming cases observed yet in dormitories,” says Lim.

PhillipCapital’s Paul Chew on the other hand is not as upbeat on the group’s main dental business as he says, “While the country has entered a Phase 2 heightened alert lockdown from May 16, dental clinics are allowed to stay open. However, we do expect cancellations. Patients will be wary of going for dental procedures despite all the safeguards in place. During the circuit breaker last April, dental clinics were not allowed to undertake any aerosol-generating procedures. This meant 90% of the procedures were prohibited except for extractions and temporary fillings.”

Although this may cause some short term impact on the group’s revenue, Chew is positive on the group’s testing business. “We expect stellar earnings growth from higher patient visits and maiden earnings from PCR testing. Despite Covid-19 vaccinations, PCR testing in Singapore has increased. The threat of variants will likely make PCR tests a norm even when international borders re-open,” he adds.

Sharing similar sentiments, DBS lead analyst Paul Yong says, "We believe the company is well positioned to benefit from vigorous testing in Singapore due to the resurgence in Covid-19 cases."

"We think that the laboratory testing business has huge potential as Q&M could get priority in being allocated more tests by the Singapore government, noting that the company will now focus on laboratory tests rather than the sale of test kits. We project this new segment to contribute 27%/29% to net earnings in FY2021/FY2022," he adds. 

As at 12.20pm, shares in Q&M are trading at 68 cents or 4.5 times FY2021 book with a dividend yield of 4.6%, according to MKE’s estimates.